Gujarat High Court
Commissioner Of Income Tax I vs Garden Silk Mills Ltd....Opponent(S) on 17 January, 2014
Author: Akil Kureshi
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/875/2013 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 875 of 2013
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COMMISSIONER OF INCOME TAX I....Appellant(s)
Versus
GARDEN SILK MILLS LTD....Opponent(s)
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Appearance:
MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1
MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 17/01/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Revenue has preferred this appeal raising the following questions for our consideration :
"(A) Whether on the facts and circumstances of the case and as per law, the Hon'ble ITAT is right in deleting the addition made by the A.O. in respect of commission payment to the Directors of Rs.93,00,000/ as the assessee failed to prove that the payment were made exclusively for the business?
(B) Whether on the facts and circumstances of the case and as per law, the Hon'ble ITAT is right in deleting the addition made by the A.O. in respect of disallowance made u/s.80IA of the Act of Rs. 247,57,900/ as the assessee failed to fulfill conditions for claiming deduction u/s.80IA Page 1 of 6 O/TAXAP/875/2013 ORDER of the Act?
(C) Whether on the facts and circumstances of the case and as per law, the Hon'ble ITAT is right in deleting the addition made by the A.O. in respect of adjustment u/s.145A of the Act to the opening stock of raw material of Rs.84,11,949/ and adjustment u/s.145A being difference between excise duty and closing stock of raw material of Rs.1,28,82,787/?
(D) Whether on the facts and circumstances of the case and as per law, the Hon'ble ITAT is right in deleting the addition made by the A.O. on account of disallowance of depreciation of Rs.16,28,11,000/?
2. Insofar as question (A) is concerned, counsel for the Revenue candidly pointed out that in the earlier year in case of this very assessee, this Court had not entertained such an issue in order dated 10.12.2013 in Tax Appeal No.876/2013. The Court made the following observations:
"2. Heard Shri Sudhir Mehta, learned Counsel appearing on behalf of the appellant and Shri J.P. Shah, learned Counsel appearing on behalf of the opponentassessee and perused the impugned judgment and order passed by the ITAT. It is not in dispute that in the previous year i.e. Assessment Year 200304 similar addition was made by the Assessing Officer, which has been set aside by the ITAT and the order passed by the ITAT deleting the addition made by the Assessing Officer on the similar ground has attained finality. While passing the impugned judgment and order, ITAT has relied upon its own decision with respect to the earlier Assessment Year 200304. Under the circumstances, with respect to the Assessment Year 2005 06 also when ITAT has deleted the addition made by the Page 2 of 6 O/TAXAP/875/2013 ORDER Assessing Officer in respect of commission of payment to the Directors of Rs.88,00,000/, it cannot be said that ITAT has committed any error and/or illegality, which calls for the interference of this Court. No question of law, much less substantial question of law arises in the present Tax Appeal. Hence, the present Tax Appeal deserves to be dismissed and is accordingly dismissed."
In the result, this question is not required to be considered.
3. Insofar as question(B) is concerned, counsel for the Revenue candidly pointed out that such issue was not considered by this Court in case of this very assessee in an order dated 22.11.2011 in Tax Appeal No.2092/2010 in which following observations were made :
"3. With respect to Question [B], the issue pertains to sub Section (8) of Section 80IA of the Income Tax Act, 1961. The assessee had a CPP Unit generating electricity, which was supplying it to a general unit. The electricity generated is being supplied to other consumers also. The CPP unit charged Rs.5.40 ps. per unit from the general unit. The Assessing Officer applying subSection (8) of Section 80IA restricted the same to Rs.5.32 ps. per unit and, thereby, restricted the deductions claimed by the assessee under Section 80IA of the Act. This restriction was primarily on the basis that the rate of Rs.5.40 ps. charged by Gujarat Electricity Board (" GEB" for short) was inclusive of 8 paise per unit of electricity duty. This component of electricity duty the Assessing Officer discarded for the purposes of ascertaining market value of the electricity generated by the CPP Unit and supplied to its general unit.
4. CIT (Appeals) confirmed the view of the Assessing Officer on the same line of reasoning. The Tribunal, however, on Page 3 of 6 O/TAXAP/875/2013 ORDER further appeal by the assessee, reversed the orders passed by the Revenue authorities referring to and relying upon the decisions of other Tribunals. The Tribunal was of the opinion that the market value of the electricity supplied by the CPP Unit to the general unit would be the same being charged by GEB from the consumers.
5. Counsel for the Revenue contended that the component of 8 paise per unit was the electricity duty which GEB was not authorized to retain but had to pass on to the Government. In essence, GEB was only collecting 8 paise per unit as electricity duty for and on behalf of the Government. He submitted that the market value of the electricity should be reckoned on Rs.5.32 ps. per unit as was done by the Revenue authority.
6. Under subSection(8) of Section 80IA of the Act, if it is found that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture.
7. We may notice that the Tribunal did not accept the contention of the assessee that the electricity is neither goods nor services and that, transfer of electricity, therefore, would not be covered under subSection (8) of Section 80IA of the Act. However, in so far as the Tribunal's reasoning to adopt the market value of the goods at Rs.5.40 ps. per unit is concerned, we find no error.Page 4 of 6
O/TAXAP/875/2013 ORDER Undisputedly, GEB supplied the electricity to its consumers at the same rate. This, therefore, was a market value of the electricity supplied by the CPP Unit to the general unit. The fact that this amount of Rs.5.40 ps. comprises of a component of 8 paise, which was electricity duty, to our mind, would make no difference in so far as the market value is concerned. To a consumer, the price being paid remains 5.40 ps. per unit. The fact that the seller retains only Rs.5.32 ps. Out of the said collection and passes on 8 paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question is, therefore, not required to be considered."
This order was followed in subsequent order in Tax Appeal No.1493/2011 concerning the same. Under the circumstances, question no.(B) is also not required to be considered.
4. Regarding question no.(C), counsel pointed out that similar question is being considered in Tax Appeal No.26/2014. This question is therefore, in our view required to be admitted.
5. Regarding question (D), learned advocate for the respondent vehemently contended that assessee changed over its method of depreciation from straight line to written down value which resulted into accumulative depreciation being claimed during the year under consideration. In view of decision of the Apex Court in case of Apollo Tyres ltd., once the audited accounts were prepared, the Assessing Officer could not tinker with the same. However, learned counsel for the Revenue, drew out attention to a judgement of Madhya Pradesh High Court in case of Gilt Pack Ltd. v. Union of India reported in 163 Taxman 331(MP), holding Page 5 of 6 O/TAXAP/875/2013 ORDER that the depreciation upon change of method of computing, the same could be claimed only prospectively.
6. In the result, Tax Appeal is admitted for consideration of questions No. (C) and (D) only.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu Page 6 of 6